RBA urged not to intervene with Aussie dollar

High-profile company director Mark Johnson has warned the Reserve Bank of Australia not to dare intervene in currency markets as its battle against a high Australian dollar rages on.

The currency was back above US95¢ last week when the United States Federal Reserve elected to keep its $US85 billion a month in stimulus intact. Signs on Friday that the Fed will pull back quantitative easing, perhaps as soon as next month, could bring some much-needed relief for the RBA.

The currency last traded at US93.93¢, which is still too high for the RBA, based on recent commentary.

Mr Johnson, who is currently a director of Westfield Group and formerly a deputy chairman of Macquarie Group, told Financial Review Sunday on Channel Nine that trying to influence currency markets was not for the RBA.

“I don’t think that the central bank . . . can or should or is in fact targeting a level of the dollar,” he said. “It’s not part of their charter and it’s not part of reality. The amount of money swilling around the world is so great that no central bank other than the US can afford to take on the markets . . . the US doesn’t care because it’s printing its own money.”

The Australian dollar is still around 40 per cent higher against the greenback measured against the beginning of Fed stimulus five years ago.

The Fed isn’t the only central bank undertaking quantitative easing to kick-start its economy, but it may be the first to exit QE. The Bank of Japan is in the middle of its own massive stimulus and that has fed what some economists believe is a currency war orchestrated on a race to the bottom.

At one point, the Australian dollar was thought to be the world’s most overvalued currency.

Evans picks 2pc cut

However, Westpac chief economist Bill Evans said the high dollar would prompt the RBA to consider further rate cuts. He is tipping an official cash rate of 2 per cent by early next year.

National Australia Bank senior economist for fixed income, currencies and commodities, David de Garis, said that when it comes to the Fed’s policy actions and their impact, the RBA remains an observer. “From the Reserve Bank’s point of view, it’s not just the Aussie-US dollar that matters, but how the Aussie dollar performs on a trade-weighted basis,” he said.

Beyond the influence of the US dollar, the currency is also vulnerable to commodity price trends and domestic factors, Mr de Garis said. The Australian dollar’s appreciation last week boosted expectations for further rate cuts this year, which would take the cash rate to new historical lows. At 2.5 per cent, Australia already has a negative “real” cash rate.

Traders are not expecting a move at the RBA’s October meeting, but Nov­ember has firmed up as a “live” event.

However, future policy decisions by the RBA would not be beholden to the currency, Mr de Garis said. “It’s not the threshold issue [for future rate cuts], I don’t think at the present time. They’re more concerned about [whether] the domestic economy is responding to rate cuts – housing, consumer spending, business investment.”